ABSTRACT
This chapter explores neutrality as a separate political economy concept, one which is dramatically affected by the changing character of warfare in the twentieth century. It provides a history of neutrality, particularly in the twentieth century, and outlines the shift from legally and military defence-based neutrality in the Great War to an economically based neutrality after June 1940. The chapter describes a broader debate on neutrality and economic warfare and suggests that small countries have no simple formula for protecting themselves from the pressures and problems of the outside world. For small states, neutrality in conflict is a complex issue and from World War II required an increasing use of realist economic tools to avoid conflict. The degradation of the neutral legal framework in the Great War and the clear shift of the military power balance in favour of the belligerents allowed Germany to conquer and/or dominate many neutrals in the first eighteen months of the Second World War.
